Portfolio Update & Watch List Wonderings

There are a few companies that I have on my radar that I could potentially pull the trigger on if the price action works in my favor. Oddly enough, all of these positions are on the long side. I say oddly enough, because if you’ve been reading this website for a while, you’ve picked up on my bearish overall macro view of the markets. Yet, like I mentioned, my macro view doesn’t infiltrate into my ability to find value in bullish or bearish situations.

I’ve dug through the fundamentals of each of these companies, and I haven’t necessarily written a post about each of them, because I’m thinking about writing pieces about companies after I’ve bought them. It seems like a weird concept to think about, but I am focused on the long term. If I start to manage money for people, I don’t ever want to feel like I’m front running a trade. This is also the reason I am considering not being specific in the companies that I invest in once I start managing capital. It’s a fine balance between transparency and integrity.

I’ll take y’all through some of the companies on my watch list, as well as my current portfolio as it stands to this day (August, 17th, 2017).

Watch List Wonderings

  1. GameStop (GME)

I wrote a piece on GameStop that you can find here in which I outlined the bullish thesis for the company. For the sake of time, I will not rehash the article. The one thing that kept me from buying into my thesis was the price action. That is close to changing. Let’s take a look at the chart:uq4hxGFi[1].png

You can see the descending wedge chart formation on the daily charts is long in duration. I am looking for price to break that descending resistance level. At first, I thought about entering on that triple bottom price around $20, but that is something I am still internally debating when it comes to entry point. Part of me knows I am missing out on some alpha by waiting for a break in resistance, but at the same time, I know that I increase my odds of being right if I enter on a breakout from resistance levels. I will continue to adapt, hypothesize, and test those strategies until I feel comfortable entering on either one without hesitation. Haven’t bought in yet, still staying patient.

2. XG Technology (XGTI)

I became bullish on XGTI months ago, never got around to writing a piece about it, but it has come up very frequently when Jacob and I discuss potential investments. Since that time, the stock had somewhat of a false breakout and has since retreated below its 50 MA in a bearish manner. However, what is perplexing is that the latest quarterly results were very impressive. Most impressively, the company no longer has to file a “going concern” notice on their SEC filings, indicating sustainable cash flows, profits, and revenues. That is huge. I don’t know why the selling is happening, but I want to get to the bottom of it. If I can’t find a good reason for the selling, I will be patient and wait for the price action to turn so I can hop in. I hope I’m patient enough to wait for the drop to continue down to the 1.60s area, in which the company has support technically.

3. Silver

Ah yes, silver is back on Rockvue Capital’s radar screen. Truth be told, it never left. I wrote a longer piece about a potential breakout formation on silver, but soon after that post, the bullish thesis depleted. I ended up taking the short side of the silver trade and making close to 250bps of profit on the trade. That remains one of my favorite trades simply due to the fact that I wasn’t gun-ho on my thesis, and I was able to change my mind when the narrative and the price action changes. That is something that you as a reader or potential investor will and should know about myself. I make predictions, I make hypotheses about the future based on evidence, research, and macro settings. However, I am very quick to reverse my thesis if news changes, or if price doesn’t react how I thought. I am not in this game for ego’s sake. In fact, if I wanted to bolster my ego, I would stay doing strictly analysis, instead of putting my money where my mouth is. If I pick a loser, I get out quickly. I don’t care about being wrong. I care about making sure I don’t lose money. Period.

After scoring a large profit on the short side, I dismissed any trade in silver for a month or so, however, the price action is looking tantalizing. With the threat of North Korea at all time highs, racial tensions not seeming to improve, the psychology of the investor may want to moveinto something more “stable”, such as precious metals. The charts are looking interesting with silver flirting a break of the 50 and 200 MA. 

This trade won’t happen for a couple of weeks if I go through and decide to pull the trigger. I am looking at the weekly charts to give me the green light, but I want something real, something expansive for me to make my entry. I would more than likely put my stop below the support line drawn there around the 15.85 – 16 region.

4. Russian Ruble vs. US Dollar (RUBUSD)

I’ve written extensively on how bullish I am about Russia, their economy, and the future of their agriculture. I am a huge follower of Jim Rogers and I read his stuff daily. Although the US Government increased their sanctions on the country, I see positive price action in their currency against the dollar. The ruble is close to breaking the 50 and 200 MA on the daily charts, and on the weekly charts, the 50 MA is acting support for price. I am already short the dollar in my portfolio, but I keep this on my watchlist for a longer trend play. 

5. Cotton (in USD on Forex Market)

I went 3/3 on cotton trades so far this year, going long once, and short twice. Cotton is approaching a key support level, so I’m waiting to see what the price action does once it hits that point. It’s had 7 straight red days up until this point. If it breaks down below support, I’ll take the short side of the trade. However, if it bounces, I might take the long, place my stop extremely close to my entry, and play for a bounce back gap up. When it comes to commodities, I am still betting small around 25 – 45 bps per trade. 

6. Ovascience (OVAS)

This net net company peaked my interest a few weeks ago, and I wrote a report on them which you can find here. OVAS is a net cash play, trading less than its net cash value. I love these investments. For the most part, these are the investments I want to comprise most of the portfolio on the equity side, however, I cannot predict with any certainty the type of investments that will compromise the fund except for the fact that the fund will be comprised 100% of investments that are undervalued. OVAS is breaching the 50 MA again, and I am looking for a more solid move upwards on the backs of a healthy quarterly earnings statement. 

Truth be told there are about 20+ companies that are on my radar right now, the price just isn’t right for a buy. If prices fall to where I would like, I would be much more frequent with my analysis and updates on where I am looking. I am steadfast in my patience not to overpay for any company. No company deserves to be bought at a premium. I am content looking for dollars trading at $0.40.

Portfolio Update

Now, onto the current portfolio as of today August 17th, 2017. The portfolio has 13 positions split between currencies and equities. This shouldn’t come as a total surprise if you’re a frequent reader of my blog, but I will continue to stress: My general thesis of the market in no way, shape, or form influences my individual investment selections. I am still finding value in US Equities. Even amongst these insanely high multiples there is value to be found and extracted, to say otherwise is naive and shortsighted. Not all of my equity positions are long, however. I am short two.

Currency Positions

  1. Short USD (DXY) – Risk: -30bps ($233 gain)

I’ve been on the bearish side of the dollar trade for a while now, even getting out too early on the short before getting back in to ride the trend I am currently on. The dollar is at a precarious point in price action, with any break below support being the windfall of the collapse of the dollar (boy that sounded all doom and gloom, I must be reading too much Jim Rogers). I still think we will see a bump in the dollar as people chase into it when equities and global economies collapse, seeing the dollar as the worlds save haven currency. Of course, the dollar as a save haven is the equivalent to a water fall mirage in the desert … It’s not really real, and it’s not really there. I’m debating on whether to move my stops closer, or farther back to play a potential retrace from the 50 MA. Will keep y’all updated. 

2. Short British Pound (GBP) – Risk: 42 bps ($322.49)

The pound broke its 50 MA in a bearish manner and I took the short side of the trade risking 42 bps. If you remember, I played the pound on the long side and made a handsome profit, so I’m taking my chances on the short side. 

Equity Positions

  1. Valeant Pharmaceuticals (VRX)

Yep, the company that famous hedge fund manager Bill Ackman bought in the near $200s and sold in the $8 – $9 is the same company I am going long on. It’s completely unfair to use VRX as a pedestal for my investment decisions compared to Ackman because every investor makes mistakes, the best of them. What I hope to do and continue to do is learn from the bests’ mistakes, that way I do not repeat them with your or my own money. All that I will say on the matter of this company with regards to Ackman. Ackman let his ego get in the way of him cutting losses and moving on. That, I can assure you, will never happen at Rockvue Capital.

Anyways, Valent is an interesting play in terms of their debt restructuring. They still have a very long way to go, but their price action on the weekly charts indicated a buy signal, and I am risking not too much on this trade (24 bps as of today). 

2. Mechel Pao (MTL) – Risk: 23 bps ($174.8)

MTL is a Russian oil company that is trading around 3 times earnings, and about 1.05 times free cash flow. Russia’s VEB also just approved of MTL’s debt restructuring program, so it will enable MTL to start reducing its debt rather quickly, while at the same time keeping its most valuable assets under house. I like the play because there is a population boom in Russia as I’m typing this. MTL is the leader in oil and gas distribution within Moscow and the surrounding areas. 

3. Michael Kors (KORS) – Risk: – 79 bps ($604.89)

Jacob brought this company to me a few weeks ago and I really liked it from the fundamental standpoint, it was the price action that I wasn’t thrilled about. However, after a stellar earnings report, absolutely crushing Wall Street estimates (much to the estimation of both Jacob and myself), the stock exposed itself to a tremendous buying opportunity. I will not go in depth on the fundamentals, earnings, or outlook of the company for the sake of length in this post. Needless to say, KORS could potentially be one of our biggest trade winners of the year. My entry point to this trade was right as price moved above 50 MA on heavy buying volume (technically always a nice sign to see when fundamentals match the technically bullish thesis). From that point I held on for the ride and was extremely lucky to catch the major gap up movement in price seen in the chart below. 

Right now the trade is sitting at a worst case scenario 80 bps profit. If KORS can break through its next resistance level, we could see it really start to take off. This is a trade where I will let run as long as possible, moving my stops up like a sniper. KORS has the fundamentals to run.

4. Intrepid Potash (IPI) – Risk: 26 bps ($197.87)

I wrote a large piece on water and how IPI works into that dealing for the guys over at Macro Ops. I do work for them as well since I expressed interest in joining their group as a volunteer intern gig. Any chance I get to surround myself with those that know more than me is a win for me, and this was huge. Alex and the guys at Macro Ops are some of the sharpest people I’ve personally come to know in the investment space. It’s been a pleasure working with them for a few months now, and I am very optimistic about our future relationship. Nevertheless, IPI came out with great earnings, beating analyst expectations, and the price action presented a buy signal. I like IPI for the water rights they own, as water will become scarce the greater the population increase.

I entered right as price action broke resistance, and as a perfectionist, I missed the best timing by a day, but I’m still in the black on this trade so I can’t nitpick too much. 

5. Urban Outfitters (URBN) – Risk: 59 bps ($453.12)

I don’t know what it is with Jacob and teenage retail clothing stores, but he sent me URBN along with AEO and the like, and even wrote an excellent piece on L Brands, the parent company of Victoria’s Secret … I might have to have a talk with him about that. Humor aside, URBN crushed earnings and the stock catapulted 17%, I bought on that rally as price action broke key resistance levels. It has since then retreated, and I am moving my stop loss up right below the 50 MA. If the stop loss gets hit, I’ll know it was a false breakout. However, if it bounces from the 50 MA it could merely be a patented bullish retracement. 

6. Streamline Health Solutions (STRM) – Risk: 40 bps ($307.80)

STRM came across my radar after breaching the 50 MA in a bullish manner. There is good reason for their shares to be reaching new highs. In late June the company recorded record revenues and net income. Revenues jumped 26% and Net Income increased 79%. Those are good numbers. The company is currently trading at a 20% discount to its sales, and it is trading slightly above book value. Not a deep value play, but a value momentum play nonetheless.

7. Rubicon Technology (RBCN) – Risk: 50 bps ($385.73)

Rubicon Technology Inc is an electronic materials provider that develops, manufactures and sells monocrystalline sapphire and other crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications. This is a NCAV play. RBCN trades at a 43% discount to NCAV, which is an extremely comfortable margin of safety (focusing on minimizing the losses). Their most recent earnings report reaffirmed my beliefs that the company can turn it around. The company is reducing their general expenses, cutting staff where it can, and slowing the overall cash burn of the company. 

8. PDL Biopharma (PDLI) – Risk: 18 bps ($135.47)

Good ol’ PDLI. This is a stock that Jacob and I have watched since the very first thoughts about Rockvue Capital came into our heads. I wrote an overview about them, which you can find here. In it I expressed my impression of the company’s CFO Jeff Garcia, as well as my confidence in its cash and balance sheets to ride out the turbulent times of healthcare limbo. 

I will be transparent and say that although I am long term bullish on this company, I did short it after it first failed to break resistance. I walked away with a small, scratch profit. I do not know if that is something I will do into the future as a defacto put option, per say. However, I took the long side on the weekly charts as it broke price resistance as well as 50 MA. It is also important to note that when both daily and weekly charts are offering a buy signal, it is usually a higher probability of being a true breakout (notice I didn’t say sure bet, there is no such thing).

9. Short Netflix (NFLX) – Risk: 27 bps ($206.32)

I have wanted to short NFLX for the longest time, not because I hate the company (I love Stranger Things, Sherlock, and being able to watch The Big Short almost monthly), but because I hate how the company is run. Much like TSLA, NFLX funds its content through mountains and mountains of debt. At some point investors should realize that this isn’t a sustainable way to fund a business, no matter how many people enjoy using the service (a la SNAP, APRN, etc.). At the end of the day, when I delve through the pages of the Intelligent Investor, I’m reminded that no company is too big or too different to be withheld from the same analytical integrity as the rest. 

10. MannKind Corporation (MNKD) – Risk: 43 bps ($332.80)

MNKD is a developmental biotechnology company that specializes in diabetes and cancer drugs. MNKD is also a discounted cash flow play, with their DCF intrinsic value weighing in around $14 per share, so the current share price of 1.43 is trading at a hefty discount. I really liked the price action in the stock, and I am interested to see how far it will run. Not a true net net stock, not the deepest of value, but there is still momentum from solid earnings. 

11. Short High Yield Bond ETF (JNK): Risk – 17 bps ($131.89)

This trade was something that I have been trying to figure out the best way to do, and I still don’t think its the best way in terms of overall net profit, but its the best way given what I can do right now on the paper account. There is a bubble in the bond market and the first place I am looking to short that bubble is the high yield market, which is overvalued more-so than the rest. As interest rates continue to rise, it will make lending more expensive, which in turn will make investing less appetizing. The price action confirmed my bearish narrative as it broke key support levels both in price and in 50 MA. 

Now I just need to really see if price can fall below 200 MA. If that happens, it could be a much larger winner than I had thought.

Concluding Remarks

If you would like further explanation on the positions in the portfolio, or if you are interested in some of the companies that are on my watchlist, please don’t hesitate to drop me an email. I would love to take the time to explain it in further detail if you express the desire.

 

 

 

 

 

 

 

 

 

A Look into the World of ADHD Drug Companies

I’ve been content sitting on the sidelines with the positions in my portfolio, so I’m not pressed to spend cash for the sake of spending cash. Seemingly each day that passes the market rises higher and higher, and the bargain bits and pieces are being steadily sucked up in the vacuum that is ‘animal spirits’, among other things. Once again, this isn’t an excuse, only an observation of the underlying market conditions. There is still value to be found if one presses hard enough. Oddly enough, I can’t seem to get away from biotech whenever I start digging for bargains. I am not sure if it is how biotech companies value the assets on their books or what not, but this is where I’m finding the most value. Unfortunately there is so much left to be determined on Capitol Hill that many of these smaller companies are left in limbo when it comes to decision making. Not having a consistent tax code in place, nor even knowing what the next healthcare system will look like plague the companies and those who seek to invest. One such company is Alcobra Pharma, or ADHD (clever ticker, right?). ADHD is a classic NCAV discount play trading at a 30% discount to its NCAV. Usually I would like that discount to be at least 50%, but I think ADHD is developing something that could be a strong catalyst in its market. Before we get into the catalyst, it’s important to take a look at the fundamentals of this company.

Continue reading “A Look into the World of ADHD Drug Companies”

A Short Post on A Short Position

For the sake of record keeping, this post marks the 50th post of this website, which is something I consider a success in terms of hoping to create a pool of information and resources for those who are interested in my investing philosophies and results. This is a short and sweet piece about a short position I took on earlier this week in the Voyager Fund portfolio. Longs are still not at prices I would consider buying (at least positions I am looking to add to the portfolio), and I am content with the longs I have in my book currently.

On Wednesday (07/05) I shorted TSLA in my paper Voyager Fund portfolio. My short position was filled at 338.57, risking 0.50% of my trading capital, and setting my stop loss at 380. Technically, we got exactly what we’ve been looking for in a short signal. The weekly charts so an engulfing bearish candle completely encompassing the bull run up to the point. The charts are slowly starting to reflect the terrible business that is TSLA. I love the product, and I wish to own the car one day, but the way the business is ran is putrid. TSLA burns through cash like nobodies business, consistently asking for money from the government and its shareholders. I hate companies that burn through cash, without apology, while asking for more cash in return.

In the long run, I hope Musk can stabilize the company, because I truly believe in the product, and I believe in the future of the industry that Musk is trying to shape. However, I cannot overlook the massive cyst that is TSLA’s balance sheets and income statements.

Hopefully Musk keeps Space-X private so he doesn’t get into the same problems there like he’s gotten into with TSLA.

Be on the lookout next week for another article. I am trying to focus my time on one company a week, doing a thorough analysis on one company a week and providing detailed analysis and review.

Deep Restructuring Play in Biotech

It’s been a while since I’ve written about a particular company, and frankly its not because I don’t have the time … I just haven’t really found any worth writing about. Whether its a new IPO, or Amazon’s buyout of Whole Foods, one event or another seems to kick the market past 6th gear and into overdrive. However, like I mentioned in my investors newsletter, and like I alluded to in previous pieces, what I think about the general market means absolutely nothing. It shouldn’t mean anything to you, the reader, and it shouldn’t mean anything to those that choose to put their money with me. My job is to find value. Period. It’s important that I stress this because when most people think of finding value, they assume that most of the value to be sought is during bear markets. We haven’t had a bear market in eight years now (since I started investing). To be on the sidelines during a bull run like this for the sake of “not being able to find value” is an atrocious and poisonous mistake to capital and intellect. Sure it might not have been a bear market where deals are found just by running a simple screener, closing your eyes, and landing on a net-net within seconds, but to make excuses is to attempt to cover up a lack of dedication and research.

I’ve mentioned numerous times how I overvalued I think the market is, but looking at my current portfolio; out of my 10 positions, 4 of them are long US equities. That’s 40% of my portfolio long US Equities. One of them is a pure momentum play, but the others are what I consider deep value, net – net picks. Even in this bull market you can still find deals, you just have to look extremely hard. Peter Lynch said it best, “Whoever turns over the most rocks will generally win.” Let’s turn over another rock.

Continue reading “Deep Restructuring Play in Biotech”

Potential Momentum Play in LG Display Co Ltd.

 

Deviating from my normal deep value investing premises, I stumbled upon LG Display Co. when searching through my consolidation screener and immediately loved the price action on the stock as the weekly price candle broke through the triangle consolidation pattern seen here:

www.tradingview

Normally I like to screen for companies on fundamentals first, and then take a look at the price action on the charts, but I wanted to try something different. With LPL I became interested in the chart before taking a look at the fundamentals. Now I know if there’s people that follow this blog based on previous posts digging into fundamentals and then going into the charts, this might be my final swan song to those readers (It was a great ride, and thank you!). But hear me out: I’m in search of making absolute returns by any means necessary. The more I learn about financial markets and the more I study the greats that have gone before me, the more I realize that I don’t want to be put in a box. One day I’m going to write a more philosophical piece on my investment style, but part of me feels I’m not ‘worthy’ enough to publish my investing morals. Nevertheless, in the quest of alpha generating evolution, let’s dive into LPL, fundamentalists rejoice!

Continue reading “Potential Momentum Play in LG Display Co Ltd.”

Another Way To Play Pharmaceuticals (SWKH)

The search for value is getting harder, but its not impossible, not yet. I wonder if at the point of impossibility to find decent value, the end of the bubble will appear. Either way, I don’t care. I’m not in the business of market timing, I’m in the business of finding value and extracting profits from that value. I think I’ve found another one of those value plays in SWKH.

SWK Holdings Corp is a specialized finance company seeking opportunities in the healthcare industry. The Company provides capital solutions to various life science companies, institutions and inventors. More specifically, their investors presentation says, “SWK’s primary focus is on originating and investing in structured, asset-based debt transactions in the pharmaceutical and medical device space, including IP-based cash flow streams, synthetic royalties, legacy product acquisitions.” In other words, think of it like a hedge fund for bio-pharmaceutical companies.

Continue reading “Another Way To Play Pharmaceuticals (SWKH)”

Timmins Gold Deep Value Buyout

Below is a snapshot of my write-up on Timmins Gold (TGD) from April 28th. TGD popped up on my deep value screener and was hanging around the top of the list for a while but I cared not to look. However, after looking at the price action of gold, and developing a personal hypothesis on the global macro position of gold, I thought TGD would be a perfect way to play gold. I coined TGD “a long call option on gold without the theta (time decay)”. Further commentary from the write-up on TradingView goes as follows:

April 28th, 2017

TGD 3.27% came up in my Deep Value screeners as one of the highest ranked companies in the screener, so I took a look to see what they were about. Timmins Gold Corp 3.27% is a gold 0.61% mining company, so right away I knew their success or demise was closely tied to whatever the price of gold 0.61%did. Before going into the fundamentals, let’s take a look at the charts.

Since late January of this year, TGD 3.27% has been consolidating nicely around the 0.35 – 0.42 price levels. I liked the length of the consolidation, and the overall chart seemed pretty well set up for a high run breakout if the price action dictated. Liking the chart, I headed over to check out the fundamentals of this company to see if there could be any substance to the breakout, or if the breakout would even be justified.

TGD 3.27% is trading at 3.77 times earnings , 0.94 times book value, and is trading 3.59 times its free cash flow. Not bad ratios, and it clearly makes this a deep value play within the gold 0.61% sector. Taking a look at some of the return percentages for the company I was pleased to find that TGD 3.27% had an Operating Margin of 30%, ROA of 20%, ROC of 25%, and a 21% ROI             . Pretty impressive. Next, I took a look at their cash positions, because I love investing in companies with a ton of cash ( RGR -0.47%is a perfect example of this idea of tons of cash, no debt, and it paying off). TGD’s Current Ratio is 3.01, more than enough cash to cover its debts.

Taking everything into consideration, this is virtually a long call option on the price of gold 0.61% without the theta (time decay). I am looking for it to break that consolidation pattern, perhaps the 0.46 price level, at which I would go long, and place my stop right below the consolidation pattern at 0.30. Once again, I want to stress that although the company appears to be solid fundamentally, they are very correlated to whatever the price of Gold 0.61% does. If gold 0.61% goes south, TGD 3.27% will most likely follow. However, if you’re long term bullish on the price of gold 0.61% like I am, this could be a way to expose yourself to gold 0.61% without having to invest purely in gold 0.61% or gold futures 0.61% .

I know this is a shorter post from me, but I wanted to update y’all on the way value can be captured if you look in the depths of the stock market pantries. Obviously these types of situations where a company gets bought out and the share price realizes a 900% gain are FEW AND FAR BETWEEN, you can enhance your chances by looking where no-one else cares to look. These types of “rare bird” (taken from Dr. Michael Burry) situations can only be found in the small / micro cap space. Successful small cap and micro cap companies are like baitfish to a hungry Great White shark. Except in the baitfish example, the baitfish turns into a Great White shark as well.

That was a horrible analogy. Long story short, look into the cobwebs of the market, dust off those left-for-dead companies, and see if you can squeeze any value out of them.

Disclaimer: Rockvue Capital cannot guarantee to find another 900% winner, and past success in highlighting stock picks does in NO WAY guarantee future success in the endeavor.

InsipreMD (NSPR) A Medical Cigar Butt

Quick Fundamental Figures

Price to Book – 0.23

Price to Sales – 0.19

EV – to – EBITDA – 0.06

Price to Net Cash – 0.43

Price to NCAV – 0.28

A Cigar Butt With A Few Puffs

InspireMD Inc is a medical device company. The Company is engaged in the development and commercialization of proprietary MicroNet stent platform technology for the treatment of complex vascular and coronary disease. Based out of Tel Aviv, Israel, this is a global micro cap with tremendous value potential. This company isn’t for the faint of heart. This is a true blue net net, beaten down equity close to life support. However, I think it has the potential to be a rare bird, with the right catalyst. InspireMD (NSPR) is taking a different approach to their business, moving away from single distribution to a direct distribution model. Much of the decline in the share price has been the volatility associated with this change in business models.

NSPR has declined 94% over the last year after starting 2016 at $10.58 per share. In order to find out how NSPR got here, we have to take a look at the past.

Financials Analysis

Starting with the Income Statement, it is easy to see the decline in share price. Since starting record keeping in 2009, NSPR has failed to make a profit. From 2011 to 2014, the company lost $14, $18, $15, and $24 million respectively. Translate that into EPS and you get dismal numbers: -3.33, -240, -260, -374.50 for 2011 – 2014.

Cash Flows paint a similar picture, showing increasing losses from 2011 – 2014, and decreasing cash positions since 2013. Free cash flow in the negatives was also reported from 2011 – 2014.

Taking a glance at the balance sheets, a similar trend prevails. Decrease in current assets since 2013 and a decrease in total assets since the same year.

A Potential Comeback?

The past numbers are pitiful, that’s well understood. But the important thing with my investing approach is an emphasis on the present, the here and now. Yes, going back 10 years in terms of financial data can help you understand how the business got to where it is now, but that doesn’t do anything for you if you’re trying to find value going forward. I guess this has been part of my change as an investor in my process. When I started, I was a deep believer in analyzing the balance sheets and finding the truth in that, instead of in the price action. However, the price action is the final and only metric that truly matters. It doesn’t matter if you find a company you think is tremendously undervalued, if the price action doesn’t reflect your sentiment, it doesn’t matter. At the same time, however, I believe the market is slow to adjust in the small cap and micro cap space.

Looking at the last 10 quarters of data, I see a much more positive trend. Operating income has trimmed from -6 to $-2 million. Earnings Per Share has seen the greatest turnaround, going from -50.00 to 0.44 in the black. We see the same thing when we move to the Cash Flow Statements. Net cash provided by operating activities increased from -6 to -2 million. Cash and Cash Equivalents have increased from 5 million in 2014, to 8 million in 2016. Free cash flow has increased from -6 million to -2 million.

Most Recent Earnings Report

James Barry is the CEO of InspireMD, and he had positive things to say about NSPR in their latest Quarterly Earnings Report on the 9th of May. Barry was quoted as saying:

“Earlier this year, we announced our transition away from a single distributor covering 18 European countries to a direct distribution model. In just a few short months, we have announced numerous distribution agreements covering markets across Europe, Asia and South America, fulfilling our commitment to relaunch both more broadly and more focused in Europe, as well as expanding our global footprint. We are extremely encouraged by the favorable response from our new partners and potential near-term future partners around the world. Not only have these distribution agreements expanded our geographic coverage, but in markets previously served by our former European distributor we are gaining deeper access into all four key clinical specialties that implant carotid stents” (Finance.yahoo.com)

The catalyst to growth and increased value in NSPR is through their latest product, the CGuard EPS device. Just starting to roll out the device to distributors, NSPR has received tremendous praise about this device. So much praise in fact, that it was honored in Russia at the ICCA Stroke 2017 Convention, as well as the Leipzig Interventional Course in Germany. Most importantly is the growth of the product. Even during a transition period in the business, NSPR recognized a 12% growth in their YoY sales of the CGuard EPS. In comparing 4Q2016 to 1Q2017, NSPR saw an 84% increase in their sales of the CGuard EPS. Because of this growth, NSPR is upping its guidance on sales for the year 2017 and 2018, banking on their device going mainstream and falling into the hands of surgeons, cardiologists, radiologists, and neurodiologists.

Revenues for the most recent quarter were up $6,000 from the previous quarter, which doesn’t seem like a sizable increase, but it was offset due to their decline in the MGuard Prime EPS. The decline in the MGuard is due to what Barry calls, “the trend of doctors increasingly using drug eluting stents (DES), rather than bare metal stents in STEMI patients” (Finance.yahoo.com). NSPR says it will look to partner with DES devices to strengthen its MGuard Prime product.

The biggest takeaway from the earnings report is the actual EPS of the company. After suffering a loss of $7.00 per share in the same quarter last year, NSPR achieved a net loss of a mere $0.81 per share in 1Q2017. NSPR also increased their cash position by a little more than a million dollars.

The Cigar Butt Value

Like I mentioned up top, the ratios on NSPR scream net net, deep value. Trading at a 77% discount to book value, an 81% discount to sales, an 81% discount to NCAV, and a 43% discount to net cash, NSPR is roadkill in the market. However, no matter how great the value may seem, it does nothing for us if the price action doesn’t coincide with our thesis. For this reason we must take into consideration the chart.

Price Action Potential

As you can see from the chart, there is tremendous amounts of consolidation at the 0.76 to .60 price channel. In an effort to focus more on the price action, I am looking for a breakout from that 0.76 price level. If that breakout happens, it could signal the bullish thesis I laid out. A more convincing price action would be a breakout above the 50 MA. I am content to wait on this one and wait for the price action to confirm my entry.

Final Thoughts

In my journey as an investor, I have made tremendous changes to my approach. Ask me a year ago, and I would’ve just bought and held a company like this, not worrying about the losses, only focusing on the gains. However, the road to true wealth and true capital management is by focusing on the losses, letting your winners run, cutting your losses short, and going for home runs. Once again, in a position like this, I would risk 1% of the portfolio, and place my stop below the lower end of the price channel at 0.50. I made that exact mistake with this exact company. Instead of waiting for the price action, I got caught up in the value of the company, bought right away at 0.96 per share, and watched it ride all the way down to 0.63 before selling. There were two main things I did wrong when I first entered this company. First, I didn’t enter on a price action breakout (i.e., I didn’t wait for the price to confirm my hypothesis), I entered during a consolidation, one of the worst entries one can make. Secondly, I didn’t place any stop losses. So not only did I violate the first rule of waiting for the price action, but I violated arguably the most important rule of risk and capital management, control your losses.

I have learned so much from this one mistake. That’s really what molds the investor, through mistakes. I try to keep my mistakes at a minimum, and instead read, learn, and research from those that have made countless mistakes before me. I love this quote from Benoit Lessard, and I’ll leave y’all with it:

“Learn from the mistake of others. You won’t live long enough to make them all yourself.”

 

Going Long Russia: Part 2

If you’ve stuck around for Part 2 of my Russian Bull Thesis, congrats! If you haven’t read Part 1, check it out here. I won’t bore you with Part 1 review, so I will give a brief overview. Part 1 dealt with the Russian economy as a whole, which returned a bullish hypothesis after my research. Secondly, it investigated different ways to play this Russian bull thesis. Part 2 is going to deal with the third option in which to invest in Russia: Direct investment in Russian Companies.

Continue reading “Going Long Russia: Part 2”

Going Long Russia: Part 1

Jim Rogers is one of my favorite investors to listen to. Truth be told, every Sunday I search YouTube to see if there are any newly released videos of Jim Rogers’ views on economies and markets. Rogers is one of the greatest investors of all time, joining forces with George Soros to create the Quantum Fund. Since around 2015 – 2016, Jim Rogers has expressed bullish interest in Russia, and it was my first semester Sophomore year of college that I listened to his bullish hypothesis. Two years later, Russia is still high on Rogers’ bull list. Internally recognizing my contrarian investing habits, I became enamored with the idea of a Russian turnaround. Yet, it doesn’t matter what I think or what I hope, what matters is the reality and scope of the situation, and the likelihood that my thesis will play out. This piece will go into my bullish hypothesis on Russia, while at the same time providing two companies that I am looking to invest in within Russia, as well as a couple different ways to play the undervaluation in the Russian Economy.

Continue reading “Going Long Russia: Part 1”